Does government funding alter nonprofit governance? Evidence from New York City nonprofit contractors

Government contracting has raised a collection of issues with respect to adequate oversight and accountability. This paper explores one avenue through which contracting agencies may achieve these tasks: through the governance practices of the contractor's board. Oversight and monitoring are a board's key responsibilities, and influencing a board's practices is one way a governmental agency can help to insure quality performance. Agencies could thus use both their selection process and their post-contracting power to influence board practice. Using a new, rich data set on the nonprofit contractors of New York City, a series of hypotheses were tested on the relationship between government funding and board practices. Significant differences were found to exist in board practices as a function of government funding levels, differences that mark a shift of energy away from some activities (i.e., traditional board functions, such as fund-raising) towards others (financial monitoring and advocacy). This suggests that government agencies may indeed use their contracting choices with an eye to particular governance practices. This increased emphasis on such activities appears to crowd out other activities, and is not unambiguously to the benefit of nonprofit board governance. © 2002 by the Association for Public Policy Analysis and Management.